After decades of offshoring, companies are increasingly building capacity closer to end markets. This nearshoring trend has triggered a surge in new factories, warehouses and intermodal terminals. The world is entering a new phase of industrial investment as countries rebuild supply chains, renew critical infrastructure and accelerate the shift to cleaner logistics. Manufacturing nearshoring, port electrification and large-scale public infrastructure programs are reshaping industrial demand.  

Governments are deploying significant stimulus toward infrastructure modernization. The U.S. Infrastructure Investment and Jobs Act, Europe’s Green Deal programs and national port renewal projects all call for automation and emissions reduction in logistics. Port operators, for example, are increasingly replacing diesel-powered cranes with hybrid or fully electric units, a market where Konecranes is already a technology leader. 

Among the beneficiaries from that multi-year capex cycle stands Konecranes (KCR FH), the Finnish leader in lifting equipment and services, positioned at the crossroads of automation and reindustrialization. Konecranes is one of our holdings in our International Small Cap Strategy.

As one of the largest global players in its niche, Konecranes benefits from scale-driven pricing power, a broad installed base and a growing stream of recurring service revenue. Its service segment, representing about 40% of group sales, generates EBITA margins above 20% – roughly double those of new equipment – thanks to long-term maintenance contracts and critical spare-parts sales that are largely price inelastic. The company services more than 600,000 cranes worldwide, leveraging its digital platform for predictive maintenance and uptime analytics. This connectivity creates high customer switching costs and allows for value-based pricing rather than cost-based competition.

Scale also enhances resilience. Through years of acquisitions and regional integrations, Konecranes has consolidated a fragmented market, broadening its service reach across 120 countries and multiple industries. This global footprint enables it to spread R&D, logistics and data infrastructure over a larger customer base while improving service response times – a key differentiator versus smaller peers. Moreover, the company’s ability to bundle equipment, parts and digital services strengthens customer relationships and supports long-term contracts that are difficult for competitors to displace. 

Equipment downtime can be very costly for customers. For Konecranes, this translates into pricing leverage and high renewal rates on service agreements. The inelastic nature of maintenance pricing, combined with the company’s deep integration into clients’ safety and compliance frameworks, provides durable margins and steady cash flow. Over time, Konecranes’ mix shift toward services and automation has driven operating margins from 7% to over 13% in five years, positioning it among the more profitable industrial equipment consolidators globally. 

Konecranes combines a diversified portfolio with a clear strategy centred on electrification, automation and data-driven service. This balance provides resilience across economic cycles while capturing long-term secular growth from reindustrialization and infrastructure renewal. We believe Konecranes is well placed to capture these structural tailwinds. Its technological leadership, digital service model and exposure to automation-driven capital expenditure make it a key indirect beneficiary of the ongoing industrial transformation.

It’s no secret that public finances in most of the markets Global Alpha covers are in a dire state, and one of the common culprits is usually pensions and other retirement benefits. Countries such as France and Italy spent roughly 15% of GDP over each of the last two years and are on average the second largest item after health care. Many countries are having to increase retirement age to alleviate the strain, and less than 30% of Gen Z expect to retire with similar retirement benefits than older generations.

In the 90s, Australia took its own unique approach to ensuring retirement-system sustainability through the development of the superannuation system. It is a mandatory savings scheme where employers are required to fund a minimum percentage of an employee’s salary into a superannuation fund on their behalf. Employees are then able to invest the amount on their own if they choose to and start withdrawing it at 65. This simple approach created one of the largest pension systems in the world with $4.1 trillion in assets, where employers contributed $147 billion in the last year. The Super Guarantee threshold, the percentage of salary employers must deposit, has once again increased this year to 12%.

Given the high expected retirement assets, it’s no surprise that Australian retirees have had a willingness to tolerate higher risk in their asset allocation while asset classes like annuities have seen a lower adoption rate compared to other developed economies. While the population is overall still young compared to the United States, there is a growing concern among experts that too much risk is being taken by individuals that cannot afford it. Regulators and policymakers in recent years have taken several steps to attempt to address the problem:

• Implementation of Retirement Income Covenant in 2022 requiring superannuation trustees to put additional emphasis on diversification and flexibility and increase educational resources.
• Friendlier mean-test treatment for lifetime income streams to improve middle-class retirees’ wealth and therefore reduce the need for risk-taking to reach retirement goals.
• Consultation on potential changes to capital settings and requirements for annuity products, with the aim of reducing capital intensity of insurers and allowing for more competitive pricing and supply, therefore making the product more attractive as part of an asset allocation.

We recently initiated a name that gives us exposure to this dynamic: Challenger Limited (CGF AU). The company operates both an APRA‑regulated life division (annuities and related longevity solutions) and a multi‑manager funds management arm (Fidante and Challenger Investment Management). Challenger manages $130 billion in assets.

As mentioned, annuities as an investment product in Australia has some of the lowest adoption rates of all developed countries at 2% vs. 15% for Japan and 20% for the United States. While some of this difference can be explained by demographics, the reality is that regulatory capital intensity for annuity providers has been much higher than other countries (meaning their pricing ends up worst) and education on the product has been lacklustre. What piqued our interest in the Challenger story is that the Australian Prudential Regulation Authority (APRA) has announced steps to address these problems as it seeks to encourage workers to include an annuity allocation in their retirement savings account. Some of the steps proposed by APRA to reduce capital intensity are now clearer. In 2025, APRA confirmed a consultation to change the treatment of the illiquidity premium, with the stated intent to lower capital requirements for annuity products when risk controls and asset‑liability matching are robust. If implemented as outlined, this would make pricing more competitive and broaden supply without compromising solvency standards.

As the dominant player in the annuity market, with a market share estimated around 90-95%, Challenger has been one of the more influential and proactive companies in providing feedback to the regulators and there are reasons to believe that regulators are using Challenger’s data to evaluate the impact of potential changes.

Even without betting on regulatory changes, Challenger has plenty of things going for it. The core annuity business in Australia is growing nicely as they are consistently landing new mandates with super annuities (which are being urged to provide their members with more guaranteed income products), the annuity book duration is increasing (allowing for higher margin/investment return), their unique Japan exposure is showing strong momentum (and they are expected to land another distributor in the near future) and the firm is launching new products both on the annuity and investment side which appear to be showing initial success.

One of the advantages of taking a global view on investing is that it allows us to find differentiated stories in a space we typically would not be overly excited about. Life insurance companies in Europe or the United States tend to exhibit bond-like features, being highly defensive and providing decent cash-flow. Meanwhile, Australia built one of the most successful retirement savings engines globally and is set to benefit from a large demographic tailwind that should see life insurers like Challenger benefit over the next decade, in addition to having regulatory tailwinds and policymakers’ support.

The Spanish economy has been the star performer in Europe recently, and consequently its principal stock exchange has also produced the best returns. In this week’s commentary, we look at the underlying reasons behind the performance of both the economy and stock market, as well as some of Global Alpha’s holdings in the country.

The Spanish economy grew over 3% in 2024, and another 2.7% of growth is forecast for 2025 which is significantly more than other advanced economies in Europe. The European Central Bank is forecasting 1.2% growth for the euro zone this year. Spain has seen its credit rating upgraded in recent weeks, in stark contrast to other large, developed economies such as the United States and France, which have recently seen their credit ratings downgraded.

A significant factor of this star performance is how the demographic situation in Spain is different from its peers. While the general movement in Europe has been toward more restrictive policies on immigration, Spain’s border has remained more open. The majority of the 600,000 average annual net inflow of immigrants are of working age which has resulted in record levels of employment (yet still the EU’s highest unemployment rate) and means Spain is not experiencing the labour shortage found elsewhere in Europe. A secondary effect is the increase in domestic consumer spending. Given that most immigrants are coming from Latin America, a shared language and culture have been key in the integration and, more importantly, acceptance into society. Most of the jobs being filled by migrants are in hospitality and construction, so there is more to be done to attract workers in high-end service sectors.

Spain has been, and continues to be, a prime beneficiary of the EU’s Recovery and Resilience Fund (RRF); only Italy has received more. The RRF provides loans and grants to EU member states for reforms and investments to make economies greener, more digital and ultimately more resilient. Spain received over €20 billion as recently as August for investment in renewable energy, rail and cybersecurity. The push into renewable energy because of the funds received from the RRF has reduced energy cost pressure and increased industrial competitiveness.

A final reason why the Spanish economy has performed so well has been the resiliency of tourism. Tourism accounts for approximately 12% of Spain’s GDP. Spain had a record number of visitors in 2024, an increase of 10% compared to 2023, and that record is expected to be beaten once again in 2025.

Combining the strength of the economy, investments and improved credit rating leads to the Spanish stock market outperforming. The outperformance is also helped by the composition of the IBEX 35, which has a large exposure to banks and financial institutions. The banks have outperformed on the back of the strong macroeconomic backdrop and improved asset quality post structural reforms. Spanish banks have low US tariff exposure, as do other domestic focused industries such as utilities and telecommunication companies.

Global Alpha counts three Spanish companies in its portfolios that give exposure to Spanish tourism, the resilient labour environment and domestic spending. Meliá Hotels International S.A. (MEL ES) owns and manages hotels and resorts. Meliá operates luxury, upscale and mid-scale hotels and resorts. Meliá operates hotels in Europe, Asia and the Americas. With fiscal spending increasing in Europe, consumer sentiment should improve, and leisure spending continues to show resilience. The demand in Spain means rates should remain strong and Meliá is well placed to benefit. Meliá has a much-improved balance sheet that trades at an attractive valuation.

Fluidra S.A. (FDR SM) is a global leader in the pool and wellness industry. They design and manufacture a range of products for residential and commercial swimming pools. The products include pumps, valves, heaters, filters, pool-cleaner robots, chemicals, and devices for pool IoT devices. Around 70% of Fluidra’s sales are to the residential end-market, and aftermarket accounts for the majority of Fluidra’s sales over the cycle, providing resilience while the industry waits for new-build activity to recover. Fluidra continues to trade at a discount to its US peers.

Merlin Properties Socimi S.A. (MRL SM) is the largest Spanish commercial REIT. It operates a 100% Iberian portfolio centred around offices, shopping centres, logistics, and most recently, data centres. Most of its assets are in the prime cities of Madrid, Barcelona, and Lisbon. The recent investment in data centres will start to contribute meaningfully to rental income by 2028 and represents the next leg of growth.

A headwind for Spain’s continued prosperity is that the minority government has been unable to pass much legislation. It has, however, avoided much of the turmoil seen in France. The challenge now is to capitalize on the domestic demand, robust tourism and EU recovery funds to continue to outperform its European peers.